Oil Rising

Please click here for an enlarged chart of United States Oil ETF (NYSE:USO).

Note the following:

  • The chart shows oil is rising this morning.
  • The chart shows oil has risen significantly from the low in early July when optimism about the Iran deal prevailed.
  • Oil is important because it contributes to inflation and inflation has proven to be sticky.
  • The move up in oil is the result of the U.S. striking two rocket launchers on Larak Island.  The U.S. said that Iran was getting ready to launch rockets with sea mines into the Strait of Hormuz.  Iran retaliated by attacking U.S. bases in Jordan and U.A.E.
  • Reverberations from Fed Chair Warsh’s hawkish speech at Jackson Hole are permeating through markets across the globe.
  • Rising oil and reverberations from Warsh’s speech are bringing selling into the stock market in the early trade.
  • The next Fed meeting is on September 15 – 16.  The Fed meeting will be the true test of Warsh’s hawkishness.  In our analysis, prudent investors should be aware of two possibilities:
    • Warsh is being hawkish to gain credibility with other FOMC members but in reality does not want to raise interest rates. 
    • The Fed actually raises interest rates.  However, it will be very unusual for the Fed to raise interest rates ahead of the midterm election.  Typically, but not always, the Fed restrains from changes in monetary policy ahead of an election to avoid any implications of the Fed being political.  
  • In our analysis, at this time, there is no clarity as to how the stock market will react to what the Fed does.  Investors should start with our Second Law of Investing and Trading, which states, "Nobody knows with certainty what is going to happen next in the markets."  Prudent investors should keep three scenarios front and center:
    • The Fed does not raise rates, and the stock market stages a strong relief rally.
    • The Fed raises rates, and the stock market gets spooked and suffers a significant drop.
    • The Fed raises rates.  This establishes the Fed’s credibility, and as a result, yields on long bonds fall.  Falling yields cause the stock market to rally.  
  • Weak seasonality is ahead.  September is often the worst month of the year for the stock market, and October is often very volatile.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Meta Platforms Inc (NASDAQ:META) and NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Microsoft Corp (NASDAQ:MSFT), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Gold

Gold continues to see selling for the following reasons:

  • As we shared with you, the initial buying in gold from the lows was triggered by buying from investors in China in response to government crackdown on moving money abroad.   
  • Near the recent top, the momo crowd aggressively bought call options on gold.  Now, the momo crowd is sitting on losses.  
  • Warsh’s hawkishness is negatively impacting gold. 

Bitcoin

The first leg of short squeeze in bitcoin Bitcoin (CRYPTO:BTC) is over.  As a result, the buying pressure is gone.  There is some selling coming in due to Warsh’s hawkish statement.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.